What if the company goes out of business in fifteen years and thus pays an annual dividend of $2.10 for only those fifteen years? What is the present value of a share for this company if we want a 10% return on the stock?
A)$15.97
B)$16.97
C)$17.97
D)$18.97

Question

Quizplus · Accepted Answer

The present value of a share can be calculated using the formula for the present value of an annuity: PV = D * [(1 - (1 + r)^-n) / r], where D is the annual dividend, r is the required rate of return, and n is the number of years. Plugging in the values: PV = $2.10 * [(1 - (1 + 0.10)^-15) / 0.10] = $15.97.

What If the Company Goes Out of Business in Fifteen